The developmental regulation of body size is a fundamental life-history characteristic that in most animals is tied to the transition from juvenile to adult form. In holometabolous insects, this transition is ostensibly initiated at the attainment of a critical weight in the final larval instar. It has been hypothesized that the size-sensing mechanism used to determine attainment of critical weight exploits oxygen limitation as a larvae grows beyond the oxygen-delivery capacity of its fixed tracheal system; that is, developmentally induced cellular hypoxia initiates the synthesis of the molting hormone ecdysone by the prothoracic gland. We tested this hypothesis in Drosophila by assaying cellular hypoxia throughout the third larval instar at 21 and 10 kPa O2, using the activity of the HIF (hypoxia inducible factor)-signaling pathway as a measure of hypoxia. While HIF signaling was elevated at low levels of environmental O2, it did not markedly increase during development at either oxygen level, and was only suppressed by hyperoxia after feeding had ceased. Further, changes in HIF signaling in the prothoracic gland alone did not alter body size or developmental time in a way that would be expected if cellular hypoxia in the prothoracic gland was part of the critical weight mechanism. Our data do show, however, that reduced HIF signaling in the prothoracic gland decreases survival and retards development at 10 kPa O2, suggesting that prothoracic HIF signaling is a necessary part of the beneficial plasticity mechanism that controls growth and development in response to low oxygen level.